ICO (Initial Coin Offering) joined the list of tools of the cryptocurrency economy not so long ago. Being an analogue of the IPO (Initial Public Offering) of the traditional economy, ICO still has differences adapted to the specific properties of cryptocurrency technologies.
The popularity of digital assets such as Bitcoin or Ethereum has grown rapidly throughout this year. It is not surprising that cryptocurrencies are actively being introduced into the digital economy and, as a result, more and more instruments are appearing that are used in crypto exchange trading.
If a classic IPO is the initial public offering of a company’s shares on a financial exchange, then in the case of an ICO the company issues its own token, which is accepted as a unit of accounting for cryptocurrency in the Blockchain network. Depending on their purpose, tokens can serve as company shares, digital obligations for goods or services, game currency, or payment within a specific network project. At the same time, it is necessary to understand that cryptocurrency and the token itself are different things.
Another difference between ICOs is the low cost of the transaction process compared to IPO transfers, due to the latest Blockchain developments. Attracting investments using ICO is tens of times cheaper than traditional exchange technologies. Small companies use ICOs for crowdfunding programs to raise collective funding for their projects.
The initiators of the ICO program announce the goals and objectives of their future project and make a proposal to conclude a deal, the so-called offer, which specifies all the rights and standards of a particular token, the nuances of the project, the timing and amount of investment.
The direct sale of tokens can occur in different scenarios. In the traditional process, the token can be sold on a cryptocurrency exchange or the company first collects the funding required by the offer, and after that launches the tokens and, in proportion to the contributions, divides them among investors.
After the auction, the company initiating the ICO begins to fulfill its obligations to investors.
As with any financial activity, there are also certain risks in the ICO virtual economy. Starting from the loss of personal keys, technical problems, a drop in token liquidity to prosaic fraud. But the rapid growth in popularity of such projects is difficult to ignore, and many wonderful programs are getting a chance to grow to significant size.
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